B.C. homebuyer loan may have zero impact
Program may not change how much capital buyers can access, experts say
DAN FUMANO
The Vancouver Sun
Both the praise and condemnation heaped upon the B.C. government’s homebuyer assistance program this month have been misguided, some B.C. mortgage industry professionals say.
On Dec. 15, the government unveiled the B.C. Home Owner Mortgage and Equity Partnership program, announcing they would invest $703 million over three years, touted as a boon “to help an estimated 42,000 B.C. households enter the market for the first time.”
While the development industry welcomed the program, economists decried its potential to further inflate housing prices and place over-leveraged borrowers at risk. But some mortgage brokers and bank employees are skeptical about the program for the opposite reason: they predict it will have a minimal impact, and will not provide homebuyers with any additional purchasing power.
Chad Oyhenart, managing director of DLC Canadian Mortgage Experts, said: “There were too many question marks that anyone on the inside of the broker industry or the lending industry could point out right away.”
“I don’t think you’re an insider in this business and a broker, and not questioning the legitimacy of this program,” he said. “Everyone seems to be in agreement that it’s not as clean-cut and straightforward as the government will have you believe.”
The 25-year loans are interest and payment-free for the first five years, at which point, homebuyers begin monthly payments at current interest rates.
Oyhenart said his contacts at banks and mortgage finance companies were “shocked” by the announcement of the program, and while none of them had confirmation about how their institutions would treat the government assistance, Oyhenart expected lenders would treat the government money as debt, and not as equity, meaning it would be included in debt service calculations and “limit the maximum amount of the mortgage you’re going to be able to qualify for.”
Putting it another way, Dustan Woodhouse, a Coquitlam-based mortgage broker with Dominion Lending Centres, said: “Mr. and Mrs. Homebuyer have two options: you can borrow $1 from the bank, or you can borrow 95 cents from the bank and up to five cents from the B.C. government. But you’re still only borrowing $1. You cannot borrow $1.05. That’s not happening. And, of course, it’s always worth repeating the fact it is a loan, not a gift.”
At least one of Canada’s largest mortgage lenders, Scotiabank, has said they will include the government money in debt service calculations.
Scotiabank spokeswoman Heather Armstrong said in an email Wednesday to Postmedia: “The new loan provided by the B.C. Government Home Partnership Program will factor into our approval process in the same way a personal loan or a repayable gifted down payment would. We will include the loan in the customer’s debt service calculations to ensure they can afford the payments once the ‘grace’ period has run out.”
Scotiabank’s statement, said NDP housing critic David Eby, “suggests that for major lenders, (the program) will have no impact on the amount of capital people can access.”
“If that’s the case for all the banks, then I think the expectations of government — that this program will actually help anyone, as well as the expectations of economists and myself — that this would increase prices and increase debt loads — would not be correct,” Eby said. “Because the loan would basically deduct from the amount of money the person could borrow, so it would have no net effect. If that’s the case, it would be profoundly embarrassing for the government.”
A spokeswoman for the B.C. Ministry Responsible for Housing was unable to immediately respond Wednesday.
Oyhenart said the program may be more about “pomp and circumstance” than about helping people.
“The B.C. government here, is obviously doing what they can, coming into an election year,” Oyhenart said. “Whether it’s viable or not, it doesn’t even matter … The government can still say ‘Hey, we’re trying our best here to help everybody get in to a home here in B.C.’ … It just makes them look like good guys.”
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